Canada Dollar Gains as Stimulus Pledge Spurs Appetite for Risk

May 3 (Bloomberg) -- The Canadian dollar rose against its
U.S. counterpart as investors sought higher-yielding currencies
amid speculation that gains in American payrolls won’t keep the
Federal Reserve from maintaining stimulus to sustain growth.

The currency reversed an initial drop made after the Labor
Department said U.S. employers added more jobs in April than
forecast. The Federal Open Market Committee said May 1 it will
maintain its bond buying under the quantitative-easing stimulus
strategy at a pace of $85 billion a month until the labor-market
outlook “has improved substantially.”

“Nonfarm was strong, but not strong enough to bring in
expectations of QE tapering,” Camilla Sutton, head of currency
strategy at Bank of Nova Scotia, said by telephone from Toronto.
“It’s a strong enough report, but it’s not strong enough to
shift the expectations of the FOMC.”

The loonie, as Canada’s dollar is known for the image of
the aquatic bird on the C$1 coin, gained 0.3 percent to C$1.0080
per U.S. dollar at 5 p.m. in Toronto. The currency, which
weakened 0.3 percent earlier, has gained 0.9 percent this week.
One Canadian dollar buys 99.21 U.S. cents.

Futures traders decreased their bets that the Canadian
dollar will decline against the greenback, figures from the
Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and
other large speculators on a decline in the dollar compared with
those on a gain -- so-called net shorts -- was 67,848 on April
30, compared with net shorts of 71,679 a week earlier.

Yield Rise

Crude oil, the nation’s largest export, gained to a one-month high as risk appetite increased, and stocks rose. Crude
for June delivery climbed as much as 2.2 percent to $96.04 a
barrel in New York, the highest level since April 3. The
Standard & Poor’s/TSX Composite Index, Canada’s benchmark equity
gauge, gained 0.5 percent.

The nation’s government bonds slid, with benchmark 10-year
bond yields climbing 10 basis points, or 0.10 percentage point,
to 1.77 percent. The price of the 1.5 percent security due in
June 2023 fell 88 cents to C$97.55.

U.S. payrolls increased by 165,000 nonfarm jobs last month,
versus a 140,000-position median forecast of 90 economists
surveyed by. The jobless rate unexpectedly declined to a four-year low of 7.5 percent, from 7.6 percent in March. Economists
forecast no change.

Canada’s currency weakened yesterday after Stephen Poloz
was named to head as head of the Bank of Canada amid concern the
appointment may signal a weaker currency and lower borrowing
costs as the world’s 11th-largest economy looks to exports to
revive growth.

‘Trade Guy’

Poloz, the former chief executive officer of Export
Development Canada, a trade financing agency, was named
yesterday by Finance Minister Jim Flaherty, who bypassed Deputy
Governor Tiff Macklem for the top job to replace Mark Carney.

Canada’s central bank is alone among Group of Seven nations
with a tightening bias, meaning its next move on interest rates
will likely be higher. The Bank of Canada has kept its benchmark
overnight rate target at 1 percent since September 2010.

Poloz is “historically a trade guy, so he may favor a
weaker Canadian dollar to favor exporters,” Jonathan Lemco,
senior sovereign-debt analyst at Valley Forge, Pennsylvania-based Vanguard Group Inc., the largest provider of U.S. bond
funds, said in a telephone interview.